China, not India, is the top outsourcing hot-spot

July 15, 2010 17:27 IST

Aided by low labour costs, China has overtaken India as the primary destination of outsourcing and shared services for Asia-Pacific companies -- netting business to the tune of $20 billion, according to accounting firm KPMG.

The KPMG survey, which covered 280 senior company executives across Asia, says that China's outsourcing and shared services are rapidly expanding -- winning a substantial market share over India and other regional destinations.

"Though, at the moment, the country has still not reached the level of maturity seen in India, the growth of China's outsourcing market is significant. Many Western companies may still see India as their location of choice, but for executives within Asia Pacific the message is clear -- China is now leading the way," said Edge Zarrella, global head, IT advisory, KPMG China, was quoted as saying in the official media in Beijing.

According to the survey, 42 per cent of the respondents said their companies have set up one of their shared services centres in China. As many as 41 per cent said they have a third-party outsourcing provider in China.

Singapore stands second as a popular location for shared services at 29 per cent, followed by India at 25 per cent.

Figures from KPMG show that in 2007, China's onshore and offshore outsourcing market stood at only $7.5 billion.

That amount nearly tripled to $20 billion last year, according to the ministry of commerce.

KPMG predicts that China's total outsourcing market will stand at $43.9 billion by 2014. Shared services are also expanding rapidly in China.

The survey found that over 80 per cent senior executives employ an outsourcing strategy, shared services, or a combination of the two.

Low labour costs was one of the main reasons for China's growth in the outsourcing business, the survey said, adding that 51 per cent of the respondents said it was the main criterion for making their decision.

The key factors used for determining the location of their shared services centre are low labour cost and language capabilities (53 percent each), the KPMG said.

However, Alan Fung, partner of performance & technology, KPMG China, said that senior executives should think twice before making their location choices based solely on the cost factor.

"They should take into consideration the long-term needs of their business..." he said, adding that language, skills and infrastructure are all critical.